In recent years, bankers have grown less interested in the jewelry industry, and the economic crisis and industry downturn made them even more selective about existing and new customers.
Bank of America exited the gold and precious-metals leasing side of the banking business several years ago when it sold that division to The Bank of Nova Scotia. Sovereign Bank is in the process of closing its precious-metals leasing division. Liquidity is shrinking. The pie is getting smaller, and some jewelers may be left empty-handed. The easiest way to have a good relationship with your banker is to have loads of collateral, make lots of money, meet all your loan covenants and borrow within your credit limits, but very few jewelry companies fit that profile. So what can they do?
There are two basic rules for working with bankers: First, they don’t like surprises; second, you need to build your credibility with them.
I was on the jewelry manufacturing and refining side of the industry for many years, and a banker once told me I was one of the few customers who actually prepared his own loan covenant and financial ratio calculations.
Most clients have the banker handle that paperwork, which means the banker is the first to know when a company does not meet its covenants or defaults on its loans. Instead of leaving this to your banker, your company should be preparing these calculations, along with the borrowing base reports.
If no one in your company can make these calculations, hire a financial consultant or certified public accountant (CPA) who can develop a spreadsheet and train you. When you see the financial picture going in the wrong direction, give the banker a heads-up and explain how you plan to improve your business.
Bankers often require projections, which they use in conjunction with historical data when they ask their credit committees for approval of loans and lines of credit. While your projections need to be realistic, be conservative. Even if you make your loan covenants, you and your business look better if you meet or exceed your projections rather than prepare aggressive projections that you miss.
Build credibility with your bankers and meet with them several times a year to provide updates. Your bankers want to be your advocates when they meet with the credit and loan committees.
If your company is not performing as well as projected, provide details of your plan to get back on track. Finally–and this is key–do what you say you will do. This is what builds your relationship with not only the banker but the bank and its credit committee. Business owners must also understand the importance of leaving capital in the business. It demonstrates a commitment that bankers like to see.
This article was published in the November 2009 issue of the National Jeweler.